Overdraft fees: look Down Under for the real reason for NatWest's retreat

The full-page advert taken out by NatWest last week announcing its decision to
cut overdraft charges was laughable.

By Paul Farrow

2:48PM BST 14 Sep 2009

If you missed it, here is what the advert had to say in a "Dear Customer" letter style.

It read: "Since taking over as chief executive of retail banking I have made it my priority to understand how, during these challenging times, we can continue to support our customers. It is for this reason we have made a series of significant changes to our unarranged borrowing charges ... yours sincerely, Brian Hartzer, chief executive officer, UK retail banking."

I doubt that, like me, many of you buy the line from Mr Hartzer that the move has been made out of the kindness of the bank's heart.

The reason is more to do with our high street banks' court battle against the Office of Fair Trading on whether the penalty fees for unauthorised borrowing are unfair. After months of legal wrangling and appeals, the omens do not look good for the banks. It seems that they will soon be forced to cut their charges anyway.

But there is another reason why Mr Hartzer's words seem more spin than substance. Mr Hartzer, who joined RBS-NatWest last month, has already experienced a consumer backlash against exorbitant bank charges, while he was chief executive of ANZ Australian banking operations. It was a fight the Australian banks lost just after Mr Hartzer left ANZ in May, and a new law is planned to be introduced in January.

Australian banks raked in $1.2bn in penalty fees out of a total of $11.6bn of fee income the banks earned in 2008. Its banking industry admitted that more than three-quarters of the penalty fees – $954m – could be avoided by consumers.

Come January, a new consumer law governing unfair contracts is set to come into force. In short, the Australian banks could have to justify $38 late payment fee that lawyers claim are significantly higher than the real charge for the banks – which are estimated to be less than $1 per transaction.

The new legislation will give customers the opportunity to challenge a penalty fee if they believe it has been unreasonably levied or is too high.

The Australian banks have pre-empted the new unfair contract law by cutting unauthorised borrowing charges this summer – Mr Hartzer's former employer, ANZ, being one of the last of the big outfits to make such a move. It would seem that the Aussie banks are not confident of winning any court battle.

Now it looks very much as though the British banks are second guessing the High Court ruling due next month by cutting their unauthorised borrowing charges too. The case for the British banks does not look good, despite their protestations. For several years campaign groups argued that charges – up to £30 a pop – were unfair.

The banks vehemently protested against accusations but they were never prepared to fight the Ombudsman on the case. In every case referred to the Ombudsman the bank caved in immediately and refunded the full amount of the charges. Many suggest they feared losing and thereby setting a precedent.

It was only after millions of people realised they were on to a winner that the banks decided that they would have nothing to lose by going to court to get a judgment. They have so far lost in the High Court and the Court of Appeal and await the judgment of the Supreme Court next month.

Several banks, in addition to RBS, have already reduced their unauthorised charges, all of which is beneficial to the customer.

But the banks should not be expecting a pat on the back for the gesture, or their posture that they are being sympathetic to their customers at a time of economic difficulty. They are making the changes because they have been boxed into a corner by a consumer fightback.

The Australians are renowned for not pulling their punches and for their straight talking, but it would seem that none of this rubbed off on American-born Hartzer while he worked Down Under. His letter published in national newspapers last week was as patronising as it was insulting. NatWest customers (who, as taxpayers, own 70pc of the group) deserve more credit than that.

new build, same old spinning

During the house price boom many buyers decided to buy, at a "discounted price", a new-build property before it was built. This is called buying off-plan.

Buyers hoped that by the time the property was completed its value would have risen. But prices have plunged and properties are worth far less than the agreed price. With banks withdrawing 90pc mortgage deals, many are refusing to lend the buyers enough to complete the purchase. Yet they have a legal duty to do so and will be in breach of contract if they don't, lawyers say.

The plight of 'off-planners' comes as a raft of press releases from Barratts, the house-builder, proclaim: "Off-plan buyers have always been able to secure extremely competitive deals." Another case of more spin than substance.